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Surprise (Not)! They Have A Deal (Probably)!

Wow, and in the nick of time! Who could have predicted it! ;~)

If press accounts (see here and here) can be believed, Boehner, McConnell and the President are on the cusp of forging a budget agreement almost precisely along the lines I forecast a few days back: essentially, Obama agreeing to the substance of Republican debt reduction policies in order to get a debt extension that will take this issue off the table until after 2012.

The key negotiating point that bridged the differences was a the form of a “trigger” that would be pulled if the joint congressional committee did not come back with the specific spending cuts needed to meet the deficit reduction target agreed to in the plan. That trigger apparently will consist of two elements: first, if the joint committee’s recommendations are not adopted by the both congressional chambers, Congress must send a balanced-budget amendment to the states for ratification. Second, automatic across-the-board spending cuts, including reductions in Medicare and defense, would kick in.

Otherwise, the plan includes essentially all the elements of the deal negotiated last week by Reid and Boehner from which Obama evidently initially pulled back. It includes:

A very short-term debt ceiling extension, attached to a military spending bill, to avoid default on Tuesday.

An overall cut of $2.8 trillion in spending, including $1 trillion that falls within spending caps over 10 years. Significantly this dollar amount should be enough to get agreement for a debt extension beyond the 2012 elections – but see the next point.

The creation of a joint congressional committee that will specify, by this Thanksgiving, how to achieve the additional $1.8 trillion in cuts. If the recommendations are not adopted, the trigger is pulled, leading to automatic cuts.

No new tax revenue.

Before everybody starts patting me on the back for my prognostic skills, however, keep in mind that this deal could still fall apart. There are both substantive and political risks. Politically, this is going to be a tough deal for Senate Democrats on the Left to swallow. Essentially, the bill represents a concession to every Republican demand. Will Senate Democrats filibuster it? If it passes, the Leftist Blogosphere (TPM, the Daily Kos, FDL) will go positively insane. Second, will the Tea Party-backed House Republican caucus accept the trigger mechanisms? There is reason to be skeptical that Congress will ever allow across the board spending cuts to occur. Remember, they tried this with Gramm-Rudman-Hollings in the mid 1980’s and Congress proved amazingly adept at manipulating the budget figures to avoid invoking sequestration. Tea Party activists might not buy into the deal because of the risky trigger mechanism. Finally, this does nothing – at this point – to address entitlement reform which, in the end, is the big budget driver.

But, at this point, this is a deal that avoids default – one driven by a political logic that almost guaranteed an end result along these lines.

I’ll be on later today with an update and more in-depth analysis. I want in particular to address, once more, the 14th amendment issue that Obama’s fervent supporters (and critics too) were so sure he would invoke.

Addendum (2 p.m.) Everyone (Boehner, Reid and McConnell) have publicly confirmed that a deal is in the works, and all three express guarded optimism that something will be worked out. The sticking point seems still to be the form of the trigger mechanism that kicks in if Congress doesn’t act on the recommendations by the joint congressional committee for specific cuts. The idea is that both sides must agree to a trigger that threatens their interests – so, threats to cut Medicare payouts to healthcare providers will presumably not be acceptable to Democrats, and the threat of deep Defense cuts will presumably force Republicans to act. I wouldn’t be surprised, however, if the Obama administration is also trying to get a face-saving provision that says something about tax increases being considered after 2012, when the economy is in a better position to tolerate them. This will be for show, but the Democrats can at least show this fig leaf to their party members.

Based on these comments, I remain optimistic that an agreement will be announced later today.

Addendum (4:30 p.m.). As expected, Reid’s effort to invoke cloture in order to bring his measure to the Senate floor failed, 50-49 earlier today, although Reid can still try again if the agreement now being negotiated falls apart. So far, I don’t see anything that appears to jeopardize that agreement.

Addendum (5:45 p.m.) Reid has signed off on the deal. Now the hard part begins – selling it to their respective caucuses!